Moldova’s Financial Sector Stability Review: Challenges and Opportunities

Introduction

The International Monetary Fund (IMF) has released a comprehensive review of Moldova’s financial sector stability, highlighting both challenges and opportunities for the country’s economy.

Banking Sector

Moldova’s banking sector is dominated by large institutions, with the top two banks holding over half of assets and deposits. Foreign banks have also been increasingly present in the market, accounting for almost 90% of total bank assets at end-2020.

• The review found that savings and credit associations (SCAs) represent a small but rapidly expanding share of credit institutions, with Category A SCAs doubling their share over the past decade to 5%.
• Other financial corporations (OFCs), which include non-bank credit organizations (NBCOs) and insurance companies, are relatively small, although NBCOs have a diverse range of business models and many are foreign-owned.

Macroeconomic Vulnerabilities

The review identified several macrofinancial vulnerabilities that could impact the financial sector’s stability. These include:

• Real-financial linkages: high loan concentration in commercial banks’ lending to only a few large borrowers, exposing them to significant name concentration risk.
• Fiscal-financial linkage between commercial banks and the government, with banks holding significant amounts of government bonds.

Recommendations

To mitigate these risks, the IMF recommends that Moldova’s National Bank (NBM) strengthen its supervisory framework, improve stress testing capacity, and enhance information sharing with international organizations.

Financial Inclusion

The review found that while Moldova has made progress in recent years, there is still much work to be done. The country scored low on several indicators, including access to credit, savings, and insurance.

• To address these challenges, the IMF recommends that Moldova’s authorities implement policies to promote financial inclusion, such as:
  • Reducing regulatory barriers
  • Improving access to credit information
  • Increasing financial literacy among citizens

Conclusion

While there are challenges facing Moldova’s financial sector, there are also opportunities for growth and development. By addressing its macrofinancial vulnerabilities and promoting financial inclusion, the country can build a more stable and resilient financial system that supports economic growth and prosperity for its citizens.

The IMF will continue to work closely with Moldovan authorities to support the country’s efforts to strengthen its financial sector stability and promote financial inclusion.